Danger — Markets Don’t Do Flat Growth Well

The late William Berry, chairman, president and CEO of Dominion Resources Inc., once asked me to go for a walk with him after I’d made a speech about changes in store for the electric utility industry. We were at a meeting of the Edison Foundation at The Homestead Resort in Hot Springs, Va.

“Every day, I ask my staff whether they’re ready for the black box that is going to make electricity,” Berry said. “And every day they tell me, ‘Yes, Mr. Berry.’ Hell, they’re not ready.”

Newspapers went through the same agony with the Internet. As William McCarren, manager of the National Press Club in Washington said to me one day, “You know, you and I have talked for 20 years about what will happen and now it is happening; it is taking us by surprise.” Quite so.

You can’t blame Berry’s staff for not being able to prepare for the future shock. If they could have or had the newspaper industry been able to prepare, there would have been no issue, nothing to get ready for.

The electric utility industry is not yet in trouble, but there are intimations that the future may hold untold troubles. On the one hand, rooftop solar and self-generation are just beginning to nibble at the utilities’ traditional market. But possibly of greater concern, demand for electricity is flat and may have begun a decline.

Blame the effectiveness of programs to reduce demand and the growing efficiency of modern appliances, lighting and motors. Smart meters will only exacerbate the reduction in demand.

Not long ago, it was believed that electric vehicles would take up the slack. Now it looks as though the electric nirvana will be delayed. Blame a failure to market electric vehicles, particularly plug-in hybrids aggressively, and the oil glut.

With gasoline cheaper than it has been in years, there is no economic incentive to buy a hybrid or an all-electric car. Utilities have not spent any money marketing electric vehicles to, in essence, create a market for their product. Serious omission.

There are not enough people around who feel their habits will affect climate change, plus those who refuse to believe in it.

Without new electric demand, utilities face a difficult future where they may lose profitable domestic load to solar, aided by aggressive solar companies like Elon Musk’s Solar City, but still have to modernize an aging grid and meet their service obligations.

This has not worried Wall Street until now. While interest rates were near zero, the high dividend paid by investor-owned utilities insulated them in the market. But now the doubts are growing.

Recently, when Edison Electric Institute President Tom Kuhn and five other executives appeared before securities analysts, bankers and investors in a ritual show-and-tell, they were taken to task for the lack of growth. I must say, though, that I do not have a lot of faith in securities analysts. When, as the publisher of an energy newsletter in the early 1980s, I appeared before the same group and boldly suggested that natural gas would again be used for electricity generation, they sniggered. As I was leaving, two of them, walking behind me, commented one to the other, “Natural gas for generation? He’s a droll fellow, but he doesn’t know what he’s talking about.”

The lack of growth is now a serious and growing problem for utilities. Attempts to fix the incipient problem are met with this question: How do you grow when you are trying to conserve?

Some years ago, with help from the Edison Electric Institute, I ran a conference in San Francisco on value-added strategies for utilities and very little that was even interesting came up. The only takeaway was that consumers would pay a premium for green power. Electrons were, it appeared, vanilla and commoditized.